News
-Two regulatory requirements, the first for ADSB-out, which costs about $90,000, and the second an Airworthiness Directive (2012-17-05) for the Honeywell TFE731-4 and -5 engines, which will cost about $350,000, will result in an estimated 700 older business jets likely retiring on 1/1/2020.
Analysis
The Honeywell TFE731-4 and -5 were popular engines, powering certain Cessna, Dassault, and Hawker business jets. With two engines per airplane plus ADSB, the cost of compliance is about $790,000 per aircraft. For a number of older models, that is as high as or close to the value of the aircraft. Essentially, the economics make the aircraft beyond economic repair.
Insight
Losing nearly the equivalent of a year of new production from the active fleet would seem to be a major impact. However, in reality, the oldest business jets that remain subject to these regulatory changes do not fly many hours, and represent a only a small portion of the overall demand for business aviation. As business aircraft tend to fly only about 300-400 hours per year on average, the remaining fleet can easily absorb the demand should the owners of those aircraft choose to instead charter aircraft.
It is unlikely that these retirements of the oldest aircraft will create demand for new replacement aircraft, as their values are a fraction of what a new aircraft would cost.
Despite the headlines of 700 business jets ready to retire on 1/1/2020, we believe the impact will be minimal on the industry as a whole.
